Bumi Resources Sweetens Debt-Exchange Offer as Default Looms

Aug. 1 (Bloomberg) -- PT Bumi Resources, the most indebted
coal producer in Asia, is trying to sweeten its debt-exchange
offer, sending a letter to holders of its $375 million bonds
ahead of a repayment deadline next week.

The Jakarta-based coal-mining group, which risks default if
it doesn’t pay on Aug. 5, is offering convertible bondholders
new terms that include repaying the debt in April 2018, three
years sooner than its initial June 5 proposal, which wasn’t
successful at a creditors meeting June 20. It’s also considering
splitting the 9.25 percent debt into convertible and straight
debentures, and paying a coupon on the latter of 8.5 percent,
according to the letter, a copy of which was obtained by
Bloomberg News. The June 5 proposal was offering a revised 7
percent coupon.

The sweetened offer may help Bumi secure a default waiver
as it seeks to manage $4.7 billion of short-term liabilities at
the end of 2013. The June 20 bondholders meeting in Singapore to
vote on the first note restructuring plan and waiver failed
because it didn’t achieve a quorum. Two other companies linked
to Indonesia’s Bakrie family have missed payments on $535
million of dollar bonds since March 2013.

Andrew Beckham, Bumi’s Jakarta-based chief financial
officer, declined to comment on the new terms when contacted by
e-mail and phone yesterday. Dileep Srivastava, another company
director, also declined to comment when contacted by e-mail.

Bondholder Talks

Bumi has held talks with some bondholders about the new
terms, according to the letter. They include an ad-hoc committee
representing investors Nan Fung Investment Advisors Ltd. and
Vervain Income Investment Ltd., as well as funds managed by Pine
River Capital Management LP and JPMorgan Chase & Co.

Nan Fung and Vervain declined to comment on the situation
in an e-mail reply to Bloomberg News.

No agreement has been reached, and the latest proposed
terms are still subject to discussion and may be adjusted
slightly again, people familiar with the matter said, asking not
to be identified because the matter is private.

The convertible notes, sold by Bumi unit Enercoal Resources
Pte in 2009, gained 0.21 cents to 40 cents on the dollar as of
12:04 p.m. in Hong Kong, according to Bloomberg-compiled prices.
They returned 14.3 percent in July, ending a six-month slide,
and are down 25.6 percent since Dec. 31.

Stock Slide

Under the latest proposal, the $375 million of bonds would
be split into two tranches, one of which would include amended
economic and conversion features and the other of which would be
restructured as straight debt, according to the letter. Both
tranches would share in the common security package on equal
basis with Bumi’s other senior secured creditors, who have
already consented to such treatment, the letter said.

Tranche one would include $225 million of April 2018 debt
paying a 6 percent coupon and convertible into Bumi shares at
300 rupiah ($0.03) each after Aug. 5, 2015. Tranche two would
comprise $150 million of April 2018, 8.5 percent straight debt,
yielding 9.25 percent.

In the initial June 5 offer to bondholders, Bumi sought to
exchange the existing 9.25 percent bonds with new 7 percent
convertible notes due July 2021. The stock conversion price for
them was to be cut to 750 rupiah from 3,366.9 rupiah.

Bumi’s shares are down 37 percent this year. The stock last
traded at 189 rupiah July 25, after which markets in Indonesia
closed for a week-long holiday. The Jakarta Composite Index is
up 19 percent in 2014.

Coal Slump

Benchmark coal prices in the Southeast Asian nation have
fallen 9.8 percent this year to $72.45 a metric ton on July 31,
extending a two-year slump to the lowest since November 2009.

Bumi, 29.2 percent-owned by the Bakrie group, warned in
June that it’s “highly likely” to default if bondholders don’t
consent to a restructuring. In December, PT Bakrie Telecom
missed a coupon on $380 million of 2015 notes, while PT
Bakrieland Development didn’t make a put option payment on $155
million of 2015 convertible debt in March 2013.

Bumi shareholders on June 30 passed a resolution allowing
the company to raise 8.05 trillion rupiah by Sept. 1 via the
sale of 32.2 billion new shares at 250 rupiah apiece, the
company said on July 1.

Standard & Poor’s upgraded Bumi to CC from selective
default on July 7, after the mining company completed a separate
deal with creditors including China Investment Corp. Bumi is
still at risk of being downgraded because S&P deems the
convertible bond restructuring as a distressed exchange, the
ratings company said.